How a visionary promoter created massive wealth for shareholders

Promoter of a company plays a huge role in ensuring company’s success in the future. After all, promoter is like a jockey who carefully navigates company on narrow bends and accelerates on straight paths. It is therefore very crucial to have great brains behind a business. This is more important for smaller companies where promoter’s vision can help leapfrog the company into bigger leagues. Today on AI Post, we will be taking example of Wipro and its maverick chairman, Azim Premji. In a recent announcement made by Wipro, Azim Premji will retire upon completion of his current term ending June’19. Going forward, his son Rishad Premji will be taking over the reins of India’s fourth largest IT company. We will also discuss on how a villager made tons of money by investing in Wipro almost by a chance. Let’s dig deeper.

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Story of a villager turned billionaire

Amalner is a small sleepy town in Jalgaon district of Maharashtra. What makes Amalner interesting is that back in 1970s, Azim Premji’s father Hussain Hasham Premji had set up an oil and ghee factory there under the name of Western India Vegetable Products Limited. This company was later renamed as Wipro. Company was listed on stock exchange since 1946. Over the years, many villagers used to work there and some of them became stakeholders in Western India Vegetable Products.

Second part of the story is the life of Mohammad Ahmed, a villager from Amalner. His father had a huge farmland in 1980s. Upon father’s death, farm land was sold and divided among his three brothers. Mohammad Ahmed got a sum of ₹20,000 in the process. While brothers choose a life of their own by using that money and starting their own business, Mohammad was left on his own. Being youngest and in the absence of his father, he was clueless and did not touch his money for some time.

Fate intertwined

One fine day, a stock broker from Mumbai, Satish Shah, arrived in Amalner in search of potential sellers for Wipro shares. Back in 1980s, those were the days of paper based shareholdings. There were no demat accounts electronically storing shares like today. The owner of shares would receive a paper certificate for the number of shares one holds in any particular company. So the job of stock broker was a little difficult. They needed to find both buyer & seller of the shares and crack the deal between the two. Just like modern day real estate brokers are working. Mr. Shah (stock broker) knew that many residents of Amalner held Wipro shares. He thought that it can be a good idea to visit the place and arrange some sellers. He had interested buyers back in Mumbai for Wipro shares. All he needed was sellers. Arriving at local bus stop, he went to a tea shop. Since there was no google back then, so the best place to find information in a small town like Amalner was local tea shop. It was a coincidence that Mohammad was also at the same tea shop, pondering over his future. Satish approached Mohammad and asked for his help as he was a local. He quickly explained how people make money from stock market by buying and selling shares. The idea struck a cord with Mohammad who was anyways looking for some work. He agreed to help Mr. Shah and went door to door to find potential sellers. At the end, Mohammad went a step ahead and purchased 100 shares for himself by using half of his money. Other half, he used for opening a local business.

Result is Massive Wealth

Initial Value: ₹10k, Present Value: ₹510.7 Cr, Yearly Dividend: ₹2.55 Cr
Click here to see calculations

Mohammad made a decision which later changed his life forever. It was a pure chance that Mr. Shah approached him at that tea shop. In the hindsight, we can only say that destiny was defined and thus fate intertwined. To an extent, Mohammad was lucky that it was not a ponzi scheme which are also very popular in rural areas. So his innocence and luck made him believe in something which he learned in just 15 minutes. Over 39 years, his 100 shares grew to 25,536,000 shares. Simply amazing!! His initial investment of ₹10,000 grew & become ₹510 Crores. On top of that, he also receives a dividend of close to ₹2.5 crores for just holding the stock. A true multibagger which was brewed over four decades. This shows the power of compounding. Mohammad spent time in market rather than timing the market.

Azim Premji: A maverick promoter

Much of what Wipro is today is a result of promoter’s vision. However, Mr. Premji is more popular for his philanthropy acts rather than being the second richest person in India. As per May’19 reports, his estimated net worth is $21.5 billions. His journey with Wipro started in 1966 at an early age of 21. He took over the ownership of the company after sudden death of his father. At that time, he was pursuing engineering from Stanford University, USA. After taking over, Premji brought new vision into the company. Company ventured out from traditional hydrogenated oil production to diversified product portfolio. The Western India Vegetable Products (now Wipro) started producing cylinders, soaps, lighting products. Later in 1977, company was renamed as Wipro Ltd.

In 1980, Premji saw a new business opportunity when IBM withdrew its operations from India. Wipro started to manufacture micro computers under technology alliance with US based Sentinel Computers. Later, Wipro also started to compliment its hardware business by providing software solutions as well. Along with IT, Premji also set up a plant for manufacturing of hydraulic tipping system and later expanded this into industrial cylinders & hydraulics. In 1989, Wipro ventured into medical device manufacturing by partnering with GE. The Wipro GE medical systems later became a subsidiary. Post economic liberalization, Wipro expanded into the production of lamps, powders, medical equipment, printers, scanners, etc. Clearly, Premji was juggling across and testing many sectors to keep company diversified. In 1995, Wipro started experimenting with IT offshore delivery model which became hugely successful due to labor cost arbitrage. In 1999, Wipro was the only Indian computer manufacturer which was Y2K compliant. Post Y2K era, IT service industry went into an overdrive which significantly outpaced Wipro’s other businesses. As of now, IT contributes most of the revenue and it is seen as an IT company. Mr. Premji was also CEO of the company between 2005 & 2008. He was known to go extra mile in the interest of the company. In one such incident, during 2007, he was on client site visit to US. Around the same time, Wipro was pitching for a large contract with an European company (UPM). It was a big deal in which TCS & Infosys were also pitching with similar solutions. To get an edge, Premji made a stopover in Europe and participated in sales discussions. Later, Wipro won that deal because of his presence. TCS & Infosys were stunned as they did not expect a CEO walking down with sales team for a bid defense.

Premji kept his business activities low profile and mostly away from media, that is why he is not as famous as Ambani or Tata but he surpasses all of them hands down when it comes to philanthropy. He recently gave away 34% of his Wipro shares for education to poor children in India. This is a massive charity of $7.5 billions. With this contribution, Premji stands at world level as one of the few Non-American philanthropist donating over a billion dollars. He lives in a frugal way. Used Honda City until 2015 when his colleagues persuaded him to buy a second hand Mercedes from an employee. He can also be seen travelling in economy class in flights. These qualities are so rare to see in a promoter and if you find one such promoter, try to stick with that business.

Conclusion

In the above example, a few things stand out as lessons. Mr. Mohammad was extremely lucky to find a stock like Wipro out of nowhere. Not everyone is so lucky. He held these shares for four decades in which he witnessed huge turmoils like scam, economic recession, Kargil war, etc. This is outstanding conviction in a company. This is next to impossible for investors who refresh stock prices multiple times within a day (thanks to smartphone). Finding a promoter like Premji is also quite rare. However, even if one can manage half of these returns, it will be a life changing investment. At this moment, investment in Wipro may not give same returns as it is already a large cap. But there are many future Wipro hidden inside the universe of small cap stocks. We keep on searching this universe under our service, Tiny CAPS.

Equities are a gold mine for creating huge wealth. Only ingredients needed are quality stock and patience to hold it through thick & thin. Unfortunately, now-a-days most investors want to make quick bucks in few months or weeks (some even in days/hours as well). Such quick bucks may come fast at times but they leave even faster, making the net balance negative. It makes investors to loose confidence in equities. Not to mention the time, energy and emotions which went into the process. We advise you to stick to long term wealth creation solutions / services which have better chances of making you rich. Slowly but Surely.

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► One of our small cap stock gave 11x returns in 3.3 years and still going strong. Recommended at ₹7 (Feb’16), stock touched ₹70 thrice (Feb’18, Aug’18 & May’19). Currently trading around ₹80 and poised to go further up.
Click here to join our small cap service, Tiny CAPS.